To say that we are living in a time of change is to state, or rather understate, the obvious. The world faces a remarkable conflux of powerful forces of change. The global economy, and political economy, are experiencing profound shifts. Institutions and policymakers confront an exceptional array of new challenges.
Against this background, a new book, “New Global Dynamics: Managing Economic Change in a Transforming World,” analyzes the global implications of the transformative changes we are witnessing, driven by shifting geopolitics, path-breaking new technologies, and climate change. The book, which we had the privilege to co-edit, examines how globalization and the international power structures are changing, delves into the shifting dynamics in industry, trade, and finance, and addresses the new challenges policymakers face at national and global levels. The figure below provides a summary, schematic representation of these new global dynamics.
Global geopolitics is shifting. A key driver is the growing economic and geopolitical power of China, which is challenging the postwar international order led by the United States. The ensuing U.S.-China hegemonic rivalry has increased geopolitical tensions. There is a surge in economic nationalism, with nationalist industrial policies and protectionism on the rise, even in advanced Western economies─notably the United States─that have been the champions of a neoliberal vision of free markets and open and nondiscriminatory multilateralism. Armed conflicts such as the wars in Europe and the Middle East are adding to geopolitical tensions.
The digital revolution is transforming markets, work, business models, the structure of trade and international comparative advantage, and financial systems. Artificial intelligence (AI) and related new advances will greatly expand the frontiers of this transformation. The full potential and implications of the latest technologies are still evolving. Today’s powerful innovations create enormous new opportunities to advance economic progress, but they also pose complex new policy and regulatory challenges. Associated economic and social disruptions and distributional consequences must be managed. Structural transformations such as technological change, as well as globalization, create winners and losers. Inequality has been rising within economies. The dislocations and widening disparities have been stoking societal discontent, political polarization, and a populist backlash against globalization.
Adding to this mosaic of transformation is climate change, which will have profound effects on global patterns of production, trade, and investment. It will alter economic structures within nations and affect interconnections among them. Climate mitigation and adaptation pose major restructuring challenges but also open new avenues for investment and sustainable growth.
With so much change happening, the global outlook will be more uncertain and volatile. Globalization is in transition. The world may not be deglobalizing, but globalization is restructuring. And the shifting geopolitics poses real risks of globalization fragmenting along lines drawn by major power rivalry, disrupting supply chains and entailing large costs for all involved—and increasing potential for conflict. Future patterns of globalization will depend crucially on how countries manage the changing international power dynamics.
In a more contested world, the need for a rules-based international order is even greater. Rather than letting the multilateral framework of rules governing economic relations between countries be frayed by rising nationalist competition and protectionism, the world would collectively benefit from recommitting to it and strengthening it by adding governance frameworks for new areas of interconnection between nations, notably the digital economy and the technologies driving it. Past gains in establishing a rules-based multilateral economic order have not only fostered global economic prosperity but have been an important underpinning of geopolitical stability. New competition dynamics in the global economy are inevitable as economies evolve and economic power structures shift. But a lesson of history is that all must play by internationally accepted rules.
As digital technologies and AI open new avenues for growth and international integration, they also present challenges for policymakers that require new thinking and approaches. New dynamics in industry, labor markets, and trade must be managed to foster inclusive growth, facilitate necessary structural change, and ease social adjustment. Digital innovations in finance must be secured by appropriate oversight. New frameworks need to be developed for regulating digital markets, where international cooperation will be important to agree on common principles and standards while recognizing that policy approaches will differ across countries. The latest technologies, notably AI applications, have immense economic potential, but they also carry serious risks of misuse. Some are dual-use technologies, with civilian and military applications, that can become a battleground for technological supremacy weaponized for advantage in major power rivalries. Cooperative frameworks will be needed wherein countries balance national and security concerns with broad technology diffusion across nations.
International cooperation has become more challenging in the changing geopolitical environment, but it is essential in matters ranging from trade policies to the global financial architecture to the regulation of new technologies. And it is indispensable for combating climate change, as the climate challenge is inherently universal. Countries will need to rise above nationalist and geopolitical interests in areas such as green technologies and energy transition to address the climate imperatives.
Major transformations are rarely smooth. They are inherently disruptive. Timely and calibrated policy responses and international cooperation on common new challenges can ease transitions. Public policy, which in general has been slow to rise to the challenges of change, must pick up the pace. And international cooperation must be revived despite today’s fraught geopolitics. The future of the global economy, and indeed of humanity, will depend on how nations engage on matters of the global commons— from a rules-based international order to climate.